Total revenues for the third quarter of 2008 increased 2.2% to $22.7 million, compared to $22.2 million for the third quarter of 2007. Pre-tax income for the third quarter of 2008 was $2.1 million, compared to $3.6 million for the third quarter of 2007, a decrease of 42.4%. Net income for the third quarter of 2008 totaled $1.5 million, or $0.04 per share on a diluted basis, compared to $2.4 million, or $0.7 per share on a diluted basis, for the third quarter of 2007.

For the third quarter of 2008, pre-tax margin was 9.3%, compared to 16.4% for the third quarter of 2007.

"Credit market turbulence reached new heights in the third quarter, increasing our focus on innovative solutions to restore secondary market liquidity," said Richard M. McVey, chairman and chief executive officer of MarketAxess. "Our first step was the addition of 21 new dealers to the platform during the past quarter to augment liquidity sources for institutional investors on the system. We are also developing technology and trading solutions to increase the breadth of potential counterparties available to all system participants. While short term results are likely to be uneven, our strong cash flow and balance sheet allow us to make essential investments to improve the functioning of the corporate bond and credit default swap markets."

Third Quarter Results

Total revenue for the third quarter of 2008 increased 2.2% to $22.7 million, compared to $22.2 million for the third quarter of 2007. Commission revenue totaled $17.2 million on total trading volume of $49.0 billion, compared to $19.0 million in commission revenue on total trading volume of $75.7 billion for the third quarter of 2007.

U.S. high-grade corporate bond commissions decreased 10.1% to $10.8 million on trading volume of $27.5 billion for the third quarter of 2008, compared to $12.0 million in commissions on trading volume of $39.9 billion for the third quarter of 2007. U.S. high-grade fixed-rate and floating-rate bond trading volume totaled $24.4 billion and $1.8 billion, respectively, compared to $31.2 billion and $6.1 billion, respectively, in the third quarter of 2007. Total U.S. high-grade trading volume includes single-dealer inquiries of $1.4 billion and $2.6 billion for the third quarter of 2008 and the third quarter of 2007, respectively. Effective September 1, 2008, single-dealer inquiry trades are being reported within U.S. high-grade fixed-rate and floating-rate bond trading volume. U.S. high-grade trading volume as a percentage of FINRA's high-grade TRACE trading volume decreased to an estimated 6.4%, compared to an estimated 7.8% for the third quarter of 2007.

European high-grade corporate bond commissions decreased 9.4% to $4.4 million on trading volume of $8.6 billion for the second quarter of 2008, compared to $4.9 million in commissions on trading volume of $14.7 billion for the third quarter of 2007.

Other commissions, which include emerging markets, high yield, credit default swaps and agencies, decreased 4.4% to $2.0 million on trading volume of $12.9 billion, compared to $2.1 million in commissions on $21.0 billion in trading volume for the third quarter of 2007.

Technology products and services, which reflect revenue for technology licenses, support and professional services, totaled $2.6 million, compared to $0.1 million for the third quarter of 2007, primarily due to the acquisition of Greenline Financial Technologies Inc.

Other revenue, which consists of information and user access fees, investment income and other revenue, decreased 11.2% to $2.8 million, compared to $3.2 million for the third quarter of 2007, due to a decline in investment income as a result of lower interest rates.

There were a total of 64 and 65 trading days in the U.S. and U.K., respectively, in the third quarter of 2008, compared to 63 and 64 trading days in the U.S. and U.K., respectively, in the third quarter of 2007.

Total expenses for the third quarter of 2008, which include expenses from acquisitions of $3.4 million, increased 10.9% to $20.6 million, compared to $18.6 million for the third quarter of 2007. Excluding expenses related to acquisitions, total expenses decreased 7.3% to $17.2 million in the third quarter of 2008. Expenses from acquisitions include a $0.7 million write-down of intangible assets recorded in connection with the Trade West Systems acquisition. Employee compensation and benefits expense increased 8.9% to $11.2 million, compared to $10.3 million for the third quarter of 2007, due to $0.8 million in employee severance costs, higher salary expense as a result of acquisitions and increased stock compensation, partially offset by reduced cash incentive compensation expense. General and administrative expenses increased 20.3% to $1.8 million, compared to $1.5 million for the third quarter of 2007, due to increased charges for doubtful accounts and higher sales costs.

Pre-tax income for the third quarter of 2008 was $2.1 million, compared to $3.6 million for the third quarter of 2007. Pre-tax margin was 9.3%, compared to 16.4% for the third quarter of 2007. Excluding the $1.5 million in charges relating to employee severance and the write-down of intangible assets, pre-tax income for the third quarter of 2008 would have been $3.6 million.

The effective tax rate for the third quarter of 2008 was 27.6%, compared to 33.8% for the third quarter of 2007. The decrease in the effective tax rate was principally attributable to a higher percentage of income earned by our U.K. operations.

Net income for the third quarter of 2008 was $1.5 million, or $0.04 per diluted share, compared to $2.4 million, or $0.07 per diluted share, for the third quarter of 2007. The $1.5 million in pre-tax charges relating to employee severance and the write-down of intangible assets reduced diluted earnings per share by $0.02.

Employee headcount as of September 30, 2008 was 185, compared to 181 as of September 30, 2007. Employee headcount as of September 30, 2008 includes 42 employees from acquisitions.

Balance Sheet Data

As of September 30, 2008, total assets were $240.1 million and included $133.0 million in cash, cash equivalents and securities, and a deferred tax asset of $37.1 million. Total shareholders' equity, including the Series B preferred stock, as of September 30, 2008 was $220.7 million.